Export duty cut may not help Tata Steel, JSW as Street sees more pain in steel stocks - Check brokerage targets

Steel Stocks, Tata Steel, JSW Steel: Tata Steel and JSW Steel traded in red on Monday, November 21, despite government announced to cut export duty on steel products and iron ore with effect from Friday, November 19, 2022– six months after imposition of the levy on May 21.

According to a Finance Ministry notification, exports of specified pig iron and steel products as well as iron ore pellets will attract 'nil' export duty. In the case of iron ore lumps and fines with more than 58 per cent iron, the rate of duty will be 30 per cent.

At 1:26 PM, Tata Steel quoted Rs 104.65 apiece, down by 0.81 per cent while JSW Steel declined more than 2 per cent to trade at Rs 694 on NSE.

While the Steel industry welcomed the government's decision, brokerages have slashed targets on the two major steel producers. 

स्टील, आयरन ओर पर ड्यूटी घटी

ड्यूटी कटौती का किसे-कितना फायदा?

जानिए पूरी डिटेल्स आशीष चतुर्वेदी से...@AshishZBiz @AnilSinghvi_ #steel #Metal #ExportDuty pic.twitter.com/IhS66mTSeU

— Zee Business (@ZeeBusiness) November 21, 2022

CLSA’s report stated that domestic prices are at a sharp premium to both import and export parity, hence a cut in duty is unlikely to drive steel prices upwards. However, it will be positive for iron ore and pellet prices.

Click here to know more dividend stocks today

According to JP Morgan’s (JPM) report, removal of export duty is a positive sign though earnings uplift in the near term is unlikely. India’s steel exports from June to October was down by 63 per cent year-on-year (YoY) basis. Iron ore and pellet exports had also collapsed. According to JPM, fundamental earnings impact will be limited in the near term.

Morgan Stanley’s report stated that the government's removal of export duty on certain steel products and raw materials is positive news for industry and should help inventory destocking. However, given domestic prices' premium to export parity and weak global demand, the near-term challenges persist. 

Nomura said that the steel prices will not decline as the export duty removal reduces risk of inventory build-up. It further stated that estimate marginal benefit to steel spreads resulting in 5 per cent upside risk to FY24F Earnings Per Share (EPS) for JSW Steel.

Citi’s reports said that the government's decision to scrap the 15 per cent steel export tariff should help drive recovery in export volumes and ease oversupply in the domestic market. However, the cuts are unlikely to provide much support to prices in near-term to domestic prices as domestic prices already at 15-20 per cent premium to imports.

Click here to get more updates on Stock Market I Zee Business Live